Payment Systems

Over the years, the Canadian payment structure has taken big leaps that prompted banks, e-commerce companies and global payment providers to offer more options to the public. Each decade is characterized by a specific “evolution” – paper instruments (cash and cheques) dominated the 60’s; the 70’s birthed credit cards; ABM usage increased during the 80’s and 90’s, paving the way for a period of convenience and security; and huge technological advancements led to innovations such as chip and PIN technology, electronic, online and mobile transfer from the 2000’s to the present.

Transactions can flow between individuals, businesses and governments; each party may use different systems when transferring funds. The following are the most commonly utilized:

Cash consists of paper notes and coins issued by the Bank of Canada. In spite of a remarkable decline in usage, it is still widely used especially when making retail purchases particularly low-value acquisitions. Zero transaction costs, instant processing time and “privacy” help cash relevant as an integral part of the payment landscape.

Cheques are traditionally employed in business-to-business and certain person-to-person transactions. These are paper notes “directing” a bank to reimburse x-value of money to a stated individual(s). Cheques still exist in material form but processing has gone digital thanks to imaging options and computerized recognition systems.

Debit Cards
Debit card (Interac, Cirrus, Plus and Maestro) has become the more preferred way of paying for goods and services, bill payments and withdrawals. It eliminates the need to carry cash all the time and it ensures that funds are readily available at the point-of-sale, as well as allowing easy access to ABM networks.

Credit Cards
Credit card (MasterCard, Visa, AmEx) functions through a revolving account where a financial institution grants an individual with an account from which to draw funds. Aside from flexibility and access to capital, one of its advantages is enabling the user establish and earn a good credit history. Additionally, in case of fraudulent activities, it offers zero liability.

Nowadays, the most commonly used method for regular and recurring activities, such as mortgage, bill payments, payroll deposits, tax refunds and government benefits, is through Automated Funds Transfer (AFT). Transfers are done based on the payer’s authorization and instructions. Due to its traceability, there is a lower risk attached to AFTs. And since the funds go directly to the recipient’s account, the risk of losing the money is significantly reduced.

Online banking. Mobile payments. Wire transfers. All these fall under Electronic Funds Transfer (EFT), which allows for a fast and safe way of processing or receiving remittances. Business dealings are settled instantaneously, guaranteeing a seamless transfer within organizations, between parties, across the globe or banking networks. The sudden boost in EFT transactions over the past decade has created many paper-free systems (public and private).

The emergence of smartphones and the increasing need for protection and convenience has driven the popularity of digital wallets or e-wallets, which has both a software (security and encryption) and an information (user-inputted data) component. This processed is utilized for online or point-of-sale purchases. Essentially, it functions in the same manner as a traditional wallet but without the physical cards or papers.

From bartering or exchanging goods to the hi-tech world, payment systems have indeed adapted to their environment. Each mechanism has its own benefits and disadvantages. We may be moving towards 100% automation, but the future is still unclear. One thing’s for sure, expect more innovation.


Z. Ricafrente | DBPC Blog